FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2415 South 2300 West, Salt Lake City, Utah 84119
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 977-9009
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Number of shares of the registrant's common stock outstanding at November
14 ,1995: 3,165,700
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of September 30, 1995 (Unaudited) and
March 31, 1995. . . . . . . . . . . . . . . . . . . . 3
Statements of Operations for the three months ended
September 30, 1995 and September 30, 1994 (Unaudited) 4
Statements of Operations for the six months ended
September 30, 1995 and September 30, 1994
(Unaudited). . . . . . . . . . . . . . . . . . . . . .. 5
Statements of Cash Flows for the six months ended
September 30, 1995 and September 30, 1994 (Unaudited) 6
Notes to Financial Statements (Unaudited). . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . .. . . 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . .12
BALANCE SHEETS
As of September 30, and March 31, 1995 SEPTEMBER 30 MARCH 31
(Unaudited) (as Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 8,386 $ 96,259
Receivables, net 3,158,179 3,125,562
Inventories 2,018,911 2,597,400
Prepaid expenses 110,540 65,806
Total current assets 5,296,016 5,885,027
Property - net 2,037,047 2,423,402
Other assets:
Investment in joint venture 78,979 49,880
Other assets 218,338 249,994
Total other assets 297,317 299,874
Total assets $7,630,380 $8,608,303
LIABILITIES
Current liabilities:
Current installments of
notes payable $2,157,340 $ 614,948
Accounts payable 1,827,959 1,841,741
Accrued liabilities 581,960 647,163
Total current liabilities 4,567,259 3,103,852
Notes payable, less current
installments 1,114,824 3,068,711
Total liabilities 5,682,083 6,172,563
STOCKHOLDERS' EQUITY
Common stock 369 357
Common stock to be issued
for settlement of litigation - 75,000
Additional paid-in capital 1,301,948 1,120,021
Retained earnings 2,262,541 2,856,923
Total 3,564,858 4,052,301
Less:
Treasury stock, at cost -
511,070 shares (1,460,012) (1,460,012)
Stock subscriptions and
interest receivable from
management and employees (156,549) (156,549)
Total stockholders' equity 1,948,297 2,435,740
Total liabilities and
stockholders' equity $7,630,380 $8,608,303
See notes to financial statements.
STATEMENTS OF OPERATIONS
For the three months ended September 30, 1995 1994
(Unaudited) (Unaudited)
(As Restated)
Sales $2,931,358 $ 3,218,973
Cost of sales 1,940,326 2,164,015
Gross profit 991,032 1,054,958
Operating expenses:
Selling, general and
administrative expenses 1,113,328 1,553,800
Research and development 133,464 212,856
Total operating expenses 1,246,792 1,766,656
Operating loss (255,760) (711,698)
Other income (expense):
Equity in earnings of joint venture 12,000 7,480
Interest expense, net of interest income (61,386) (92,977)
Total other income (expense) (49,386) (85,497)
Loss before income taxes (305,146) (797,195)
Benefit from income taxes 0 296,977
Net loss $ (305,146) $ (500,218)
Net loss per common
and common equivalent share $ (0.10) $ (0.19)
Weighted average shares and
common equivalent shares outstanding 3,165,052 2,675,202
See notes to financial statements.<PAGE>
STATEMENTS OF OPERATIONS
For the six months ended September 30, 1995 1994
(Unaudited) (Unaudited)
(As Restated)
Sales 6,082,212 $6,077,056
Cost of sales 4,073,375 3,792,006
Gross profit 2,008,837 2,285,050
Operating expenses:
Selling, general and
administrative expenses 2,234,553 2,590,414
Research and development 278,841 384,858
Total operating expenses 2,513,394 2,975,272
Operating Loss (504,557) (690,222)
Other income (expense):
Equity in earnings of joint venture 29,099 27,473
Interest expense, net of interest income (118,924) (123,560)
Total other income (expense) (89,825) (96,087)
Loss before income taxes (594,382) (786,309)
Benefit from income taxes 0 293,167
Net loss $ (594,382) $(493,142)
Net loss per common
and common equivalent share $ (0.19) (0.18)
Weighted average shares and
common equivalent shares outstanding 3,123,045 2,675,202
See notes to financial statements.
STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1995 1994
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net Loss $ (594,382) $ (493,142)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 321,993 311,650
Amortization 20,242 2,830
Equity in earnings of
joint venture (29,099) (27,473)
Stock subscriptions
interest receivable 0 9,200
Increase (decrease) in cash,
net of the sale of the
UPS line, due to change in:
Receivables 460,881 (419,951)
Inventories 94,743 490,745
Prepaid expenses (44,734) 2,481
Other assets 11,414 499
Accounts payable (13,782) (52,075)
Accrued liabilities (174,246) 255,984
Net cash provided by
operating activities 53,030 80,748
Cash flows from investing activities:
Capital expenditures (236,349) (390,454)
Proceeds from sale of fixed
assets related to UPS line 290,959 0
Proceeds from sale of UPS line 109,043 0
Net cash provided by (used in)
investing activities 163,653 (390,454)
Cash flows from financing activities:
Proceeds from sale of common stock 104,273
Net repayments under revolving
credit agreement (117,281) (747,842)
Proceeds from borrowing on
notes payable 0 2,410,375
Principal payments on notes payable (294,214) (1,353,401)
Proceeds from exercise of
stock options 2,666 0
Net cash provided by (used in)
financing activities (304,556) 309,132
Net decrease in cash and cash equivalents (87,873) (574)
Cash and cash equivalents at
beginning of period 96,259 25,640
Cash and cash equivalents at end of period $ 8,386 $ 25,066
Supplemental disclosures of cash
flow information:
Cash paid during the period to Interest 119,081 172,917
Supplemental disclosures of non cash
investing and financing activities:
Note issued for sale of UPS line $ 493,498 $ 0
Common stock issued for legal
settlement, accrued at March 31, 1995 75,000 0
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying financial statements contain
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position of EFI Electronics Corporation (the
"Company") at September 30, 1995, and the results of its operations and its
cash flows for the six months ended September 30, 1995 and September 30, 1994.
The results of operations for the period ended September 30, 1995 are
not necessarily indicative of results for the full year period.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Company's 1995
Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following at September 30, and March 31, 1995:
September 30 March 31
(Unaudited)
Trade receivables $2,707,576 $2,744,890
Receivable from UPS sale 296,749 0
Warranty premium receivable 17,643 27,745
Income tax refund 199,949 536,670
3,221,917 3,309,305
Allowance for doubtful accounts (63,738) (183,743)
Total Receivables $3,158,179 $3,125,562
2. INVENTORIES
Inventories consisted of the following at September 30, and March 31, 1995:
September 30 March 31
(Unaudited) (As Restated)
Raw materials $ 943,006 $1,909,155
Work-in-process 286,974 342,406
Finished goods 788,931 345,839
Total $2,018,911 $2,597,400
3. NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net loss per common and common equivalent share is computed based on the number
of common and dilutive common stock equivalent shares outstanding and is
adjusted for the assumed conversion of shares issuable upon exercise of
options or warrants, after the assumed repurchase of common shares with the
related proceeds. The stock subscriptions receivable are treated as
warrants for purposes of this computation.
4. BENEFIT FROM INCOME TAX
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Deferred income taxes are provided primarily for the temporary difference
between financial reporting and income tax recognition of depreciation.
Research and development tax credits are used to reduce income taxes payable
in the year such credits are realized.
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
4. BENEFIT FROM INCOME TAX, cont'd.
There is no provision for income taxes for the three and six months ended
September 30, 1995 because the Company had both a book and taxable loss for
the periods. The Company has concluded that a full valuation allowance should
be provided for losses during these periods because all future reversals of
existing tax liabilities have been offset by previous operating loss and
research and development credit carryforwards.
5. NOTES PAYABLE
At September 30 and March 31, 1995 notes payable consisted of the following:
September 30, 1995 March 31, 1995
(Unaudited)
Collateralized promissory notes $ 1,872,205 $ 2,137,019
Revolving line of credit 1,341,509 1,458,790
Uncollateralized promissory note 58,450 87,850
3,272,164 3,683,659
Less current installments of
long-term debt (2,157,340) (614,948)
Total notes payable,
less current installments $ 1,114,824 $ 3,068,711
The collateralized notes and revolving line of credit contain financial
covenants, the most restrictive of which require the Company to maintain not
less than $ 3.0 million of tangible net worth and a debt to net worth ratio not
to exceed 2.1 to 1. At March 31, 1995 and September 30 ,1995, the Company was
in violation of these two covenants. Appropriate waivers have been obtained
from Key Bank as of March 31, 1995, and through June 30, 1996.
6. POSSIBLE TAX LIABILITY
It has come to the attention of management that there is a possible tax
liability related to prior years' payroll taxes. TheCompany has not received
its 1994 Federal Income Tax refund and it is possible that this refund has been
offset against a tax liability being asserted by the IRS relating to
penalties and interest from late filings of payroll tax returns for years
prior to 1994. Management is currently working with the Internal Revenue
Service to determine the disposition of the 1994 Federal Tax refund and if,
in fact, there are penalties and interest that the Company is not aware of
related to prior years. It is expected that this issue will be resolved prior
to March 31, 1996. Since management believes that
any additional liability is not probable they have elected not to recognize any
additional liability at September 30, 1995.
7. RESTATEMENT OF MARCH 31, 1995 FORM 10-KSB
During August 1995 the Company determined that payroll tax expense, cost of
sales, cash, inventories and accrued liabilities for the year ended
March 31, 1995 were incorrect. Additionally, a legal dispute was settled
subsequent to March 31, 1995 that was not properly reflected in the
March 31, 1995 financial statements. As a result, the financial statements
for the year ended March 31, 1995 have been restated to reflect the appropriate
account balances. The Company has amended Form 10-KSB filed with the
Securities and Exchange Commission to reflect this restatement.
In addition, this amendment has reflected a restatement of these accounts for
the three months ended September 30, 1994 and December 31, 1994.
This amendment corrected errors in these accounts reported in Form 10-QSB
for the three months and the six months ended September 30, 1994.
All references in this report to the Form 10-QSB report for the periods
ended September 30, 1994 are to the financial statements as restated.
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Sales for the three months ended September 30, 1995 decreased
$288 thousand (9%) compared to the three months ended September 30, 1994,
primarily as a result of the sale of the Company's UPS product line in
June 1995. Year to date sales increased $5 thousand (1%) from the same
period last year. Although the Company has sold its UPS product line,
the decrease in UPS sales has been offset by increases in plug-in volume.
Sales revenue for plug-in products for the three months ended
September 30, 1995 were $91 thousand (5%) greater than the same three months
last year and increased year to date by $508 thousand from the previous year.
In July 1994, the Company reduced the retail and average selling prices of
its plug-in products by up to 25% in order to increase total unit and sales
volume in the very competitive plug-in markets. Since July 1994 the Company
has experienced a significant increase in its plug-in sales from this action.
The large year to date increase is the result of sales in the first three
months of this year that were $400 thousand greater than the same period in
the previous year before this price decrease.
Panel sales for the current three months are $78 thousand (12%) above last
year. This is due primarily to an initial stocking order from a large
national electrical distributor signed by the Company during the period.
Management expects this increase in higher margin panel sales to continue as
this contract develops. This increase was offset by a decrease in the three
months ended June 30, 1995 resulting from $170 thousand of one time sales to
an end user in the same period of the prior year.
Gross Profit on sales for the three months ended September 30, 1995 decreased by
$64 thousand (6%) and by $276 thousand (12%) year to date. Gross profit as a
percentage of sales was 34% for the three months ended September 30, 1995
and 33% year to date. This compares to gross profit in the previous year of
33% and 38%, respectively. These changes, primarily in the first three
months, are the result of several factors.
Margins on plug-in products declined by seven percentage points due to a
significant change in product mix. The Company's high end, high margin
plug-in products decreased while sales of low end and specialty military
plugstrip models increased, both of which have much lower margins.
Panel sales for the three months ended Jund 30, 1995 were much lower than the
previous year as described above. These sales have much higher margins than
the Company average. A decline, therefore, causes a lower overall margin.
UPS margins in the first three months of the current year were much
lower than prior periods as the Company attempted to sell off inventory by
heavily discounting its average sales price. There were no UPS sales in the
three months ended September 30, 1995. Since UPS margins are lower than the
overall average Company margin, absence of these products improved overall
margins for this period.
Decreases in contribution margins were partially offset by reductions in
manufacturing variances and other costs.
Operating Expenses decreased $520 thousand (29%) in the three months ended
September 30, 1995 compared to the prior year and $462 thousand (16%) year
to date.
Research and development expenses decreased $80 thousand for the current three
months and $106 thousand year to date due to the discontinuation of the UPS
product line discussed above.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Selling, general and administrative expenses decreased $440 thousand for the
three months ended September 30, 1995 primarily due to substantial reductions
in promotional expenses related to the discontinuance of the UPS product line.
In addition, the Company has eliminated its outbound telemarketing department
since the first half of last year without a material impact on revenue. Finally,
last year the Company wrote off receivables for the Triple Crown Warranty
program which did not recur this year and are not expected to recur.
Year to date expenses decreased $356 thousand.
As previously reported, the Company is starting up a new Network Response
Systems (NRS) division based on proprietary software owned by EFI. This effort
offset other expense savings as expenses of this startup added $120 thousand
to selling, general and administrative expenses for the three months ended
September 30, 1995 and $206 thousand year to date.
Net Loss before tax benefit for the three months ended September 30, 1995
improved over the prior year from $797 thousand to $305 thousand. The year
to date loss before tax benefit improved from $786 thousand to $594 thousand.
These improvements were due to substantial decreases in operating expense
that offset decreases in gross profit and startup costs associated with NRS.
Liquidity and Capital Resources:
Sale of UPS Product Line.
During the three months ended June 30, 1995 the Company sold to Valence, L.L.C.
(Valence) its line of UPS products along with the inventory and fixed assets
associated with these products for $983,746. In addition to the sale of the UPS
product line, Valence purchased 66,667 shares of common stock of the Company for
$100,000. The Company received total cash of $490,248 and a note receivable of
$493,498 with installments due in August, October and December of 1995.
The Company also signed a two year contract to supply Valence with UPS products
on a cost plus basis. The purpose of this sale was to allow the Company to
focus on its core TVSS business lines and to expand into related
products and services.
The impact of this transaction is reflected in the September 30, 1995
statement of cash flows as a sale of fixed assets and proceeds from sale of
the UPS line. Operating cash flows have been presented net of the effects
of the sale of the UPS line, as follows:
Accounts receivable $493,498
Inventory (483,746)
Deferred income (109,043)
Cash flows from operating activities for the six months ended September 30, 1995
were $53,030 compared to $80,748 for the six months ended September 30, 1994.
The loss of $594 thousand was more than offset by a reduction of accounts
receivable ($461 thousand) and inventory ($95 thousand) and the adjustment
to cash flow from depreciation expense.
Cash flows provided by (used in) investing activities for the six months ended
September 30, 1995 were $164 thousand as compared to $(390) thousand for the
six months ended September 30, 1994. Capital expenditures during the current
year were $236 thousand primarily for prepayments on molds and other tooling
for a new line of plug-in products to be introduced in early calendar 1996.
Offsetting these expenditures are proceeds from the sale of UPS assets. In the
prior year the Company spent $390 thousand on fixed asset acquisitions for a
new radial insertion machine.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Cash flows provided by (used in) financing activities for the six months ended
September 30, 1995 were $(305) thousand as compared to cash flows provided by
financing activities of $309 thousand for the six months ended
September 30, 1994. The Company reduced its debt by about $410 thousand due to
scheduled payments. This was offset by proceeds from the sale of stock
related to the UPS sale of $100,000. During the previous year, the Company
restructured a portion of its debt, generating positive net cash flow.
During the three months ended September 30, 1995 certain of the Company's notes
payable were reclassified as current liabilities because their term ends in
June 1996. Although the Company usually extends the terms of its notes
payable beyond one year, it has elected not to do this at this point since it
is currently negotiating with other funding sources to refinance a portion
of this debt. When this negotiation is complete, the Company expects to enter
into a new term debt agreement with its bank for a lesser amount and a term
beyond one year.
The Company has experienced significant negative cash flow for several months.
Thus far, reductions in receivables and inventory, increases in accounts
payable, proceeds from the sale of the Company's UPS business, refund of
income taxes and other sources of cash have provided adequate liquidity for
ongoing operational needs. During the three and six months ended
September 30, 1995 cash flow from operating activities has been positive.
During the first six months of this year the Company has invested in tooling
for a new line of plug-in products and has paid down significant bank
debt as defined in existing loan agreements.
The Company does not anticipate significant additional investments in fixed
assets for the remainder of the fiscal year. Management is also negotiating
with new funding sources to significantly reduce principal repayment
obligations. Currently the Company is operating near cash flow break-even.
As a result of these factors, management believes that it will have
sufficient liquidity to fund ongoing operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
none.
B) There were no reports filed on form 8-K during the quarter ended
September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EFI ELECTRONICS CORPORATION
(Registrant)
Date: November 13, 1995
/s/ Richard D. Clasen
Richard D. Clasen
President and
Chief Executive Officer
/s/ David G. Bevan
David G. Bevan
Vice President and
Secretary
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